The Chinese economy grew by 5% last year – but this should come as a surprise to no one. After all, this was the goal of the Chinese Communist Party, and Xi Jinping had already stated a few weeks ago that the growth goal had been achieved. However, there are still some interesting developments beneath the surface, notes Volkmar Bauer, foreign exchange market analyst at Commerzbank.
The Chinese yuan is poised for a modest rise amid concerns about exports
“More striking is the imbalance in the Chinese economy, which has become increasingly evident in the data in recent months. While exports continue to rise (+6.6% y/y in December – data was already released last week), retail sales in December were up just 0.9% in nominal terms compared to the previous year. After adjusting for inflation of 0.8%, China’s retail sales in December 2025 were almost unchanged in real terms compared to last year. The situation gets even worse when it comes to investment.”
“Investment in fixed assets in 2025 was 3.8% lower than the previous year’s level. Therefore, the decline in December was probably in double digits again. So the only ray of hope in the monthly economic data remains industrial production, which grew by 5.2% year-on-year. However, since there is no domestic demand for this increased production, the Chinese economy will still need to seek relief in exports.”
“From a currency perspective, this means that the very tightly managed Chinese yuan will continue to be allowed to appreciate very slightly against the US dollar. Continued low inflation, which remains deflationary in terms of producer prices and the GDP deflator, is causing China’s real exchange rate to continue to depreciate, meaning that the currency must actually appreciate significantly in nominal terms in order to maintain purchasing power parity. However, excessive currency appreciation could impact exports. Since foreign trade is currently the last remaining growth engine, the central bank will Very careful about what you allow.”
